Many lenders who are struggling to comply with HUD
's new rules now know that the government isn’t only interested in giving consumers more information, but more information that is more likely to be more accurate when they get to the closing table.
Despite the pain change always brings, this is a noble idea.
Anyone who has looked at the customer satisfaction ratings for mortgage lenders knows that the closing table is as close to Hell as you can get without actually dying. Most of the people who have problems with our process don’t even know it until they get to the closing table and find out that what they thought they were signing doesn’t line up with the docs they actually end up signing. This tends to make people unhappy.
In essence, this is one of those “failure to communicate” problems. With a nod to Cool Hand Luke
, most of our industry’s problems and just about all of the government’s attempts to solve them come down to trying to effectively communicate what the lender should (but sometimes doesn’t want to) tell the borrower in a way that the consumer can actually understand.
This wouldn't be such a big deal if we were selling brake pads. But mortgages are complicated financial instruments and any attempt to simplify them bears with it the risk that important information will be withheld from the borrower. So we have lots of disclosures, lots of paper.
The government thinks that if the lender and its settlement services partners are forced to communicate information (mostly numbers) to the borrower correctly earlier in the process it will allow the consumer to shop around for the lowest numbers. In other words, we're being told to give the borrower everything he needs to know to go and do business with someone else. In what industry does that work? My dentist won’t even allow me to walk out of the office with a price list for fear that I’ll shop services.
Now, I’m not saying that information shouldn’t be free. I recently read an interesting column in Newsweek
written by Andrew Zolli, executive director of PopTech, a social-innovation incubator and thought leadership conference. In his column, Zolli talks about his past as an entrepreneur during the first Internet boom when he claimed, erroneously according to him, that all information should be free. His firm, like many others during that period, failed. He links his generation’s disdain for monetized business models with the concept of free information and concludes that information cannot be free. Strike two for Mr. Zolli.
Information is free. It’s always been free. Don’t believe me? Find a smart person and ask her. You’ve just done what every reporter for every publication does to get their stories and it cost you nothing. We use our eyes and ears, our friends and family, our business networks and our local libraries and we gather information all the time. We listen to advertiser supported television, radio and webcasts and glean information for free there, too. Information is everywhere and it’s free for the asking.
What has not been free and should not be free are information filtering and analysis. It’s also not free to get other people to gather up information for you, but that has nothing to do with the information itself and is just as true for the grains of wheat we use to make bread.
People think they buy newspapers for information. What they really buy them for is to find out which stories, of all those floating around out there, are most important, most relevant, most worthy of the limited amount of time we have to consume them. Newspapers, like network and cable news anchors, are filters. They tell us what we should focus on.
Even more important to us than what we should focus on is what we should think about it. Most folks, in my humble experience, are not overly willing to think for themselves. They seem to find it tedious and are more than willing to take direction from some pundit or expert.
This has made mortgage originators a lot of money over the past decade or so, though not as much of late. In most cases (though this could be argued), the borrower walked away with their goal realized, a new home or a pocketful of cash, in the case of the old cash-out refinances (remember those?). In some cases, it didn’t work out so well and borrowers were swindled into signing paperwork that would ultimately send them spiraling into default and/or bankruptcy.
The government thinks information should be free. So do I and I think even Mr. Zolli will agree eventually. But the information on the Good Faith Estimate is not simple information. It’s the result of an analysis of the borrower’s specific situation, the loan programs available at the time, the estimated value of the property at that point in time and numerous other factors. Is this what the government expects lenders to make available for free to their borrowers so they can shop it around?
I’m no pundit, so I’ll give you my analysis of that for free: good luck.